Rig worker manipulated stock market, says ASC

CALGARY — A Calgary rig worker who used his off weeks to become a day trader and convinced a Vancouver gold mining company to hire him as a promoter has been found to have illegally attempted to manipulate the market.

An Alberta Securities Commission panel has ruled that David De Gouveia violated securities laws by engaging in a pattern of trading including upticks (trading at a higher price than the immediately preceding trade); high closes (closing trades on an uptick); wash trades (acting as both seller and purchaser in the same transaction); and uneconomic trades (selling and then immediately buying shares at a higher price.)

Penalties, if any, are to be determined at a later date. ASC spokesman Mark Dickey said Gouveia (who doesn’t use the De part of his legal name) could face administrative penalties of up to $1 million per contravention and a lifetime ban on being a company officer or participant in the public market.

In a decision posted on its website, the ASC says that Gouveia bought and sold shares on the TSX Venture Exchange in Magellan Minerals Ltd., a Vancouver-based company looking for gold on exploration blocks in northern Brazil.

It added that although the 32-year-old Calgarian was unschooled in financial markets, he managed to convince Magellan chief executive Alan Carter after a series of phone conversations to hire him as a “corporate adviser” to disseminate information about Magellan.

“Carter testified (and we accept) that Gouveia was not asked to be a ‘market maker’ or to boost the Magellan share price or apparent market interest in Magellan shares through his own trading, and was never instructed to do any trading at all,” the decision states.

In November 2009, Magellan granted Gouveia options to buy 200,000 shares at 23 cents each as compensation, with the options vesting in 50,000-share increments over the next 18 months.

Gouveia admitted he exercised all of the options and sold all of the shares for a profit totalling $122,000.

In its decision, the ASC says that Gouveia published favourable commentaries, comments and blogs about Magellan on the website Stockhouse.

Carter, a geologist, testified Gouveia even accompanied him on a site visit to the Brazil properties and seemed knowledgeable about its mining business.

“Gouveia testified that the image he projected to Carter was a facade,” the ASC decision states, adding that Gouveia admitted making up a company name, Gouveia Capital Corp., because it “would sound better than a personal e-mail address.”

The ASC decision states Gouveia acknowledged actively trading Magellan shares but denied any improprieties under Alberta securities laws and insisted he is an unsophisticated investor.

“The humble portrayal of Gouveia as — to put it bluntly — a naive bumbler was thoroughly unconvincing,” disagreed the panel.

“He was simply too good at what he did for that to make sense. Moreover, we had the opportunity to read some of his writing (in evidence), to hear him speak and to observe his demeanour throughout the hearing. All of this left the panel with an impression not dissimilar to what Gouveia gave Carter.”

The ASC panel heard that in 191 Gouveia trades (not including the Magellan options) he generated a total loss of $1,100.48.

In its decision, it said Gouveia’s two CIBC accounts were partially frozen in March 2009 and he was “fired” as a client after staff noticed his odd trading behaviour. CIBC also reported the matter to IIROC, the Investment Industry Regulatory Organization of Canada.

ASC staff and Gouveia have until next week to inform the ASC panel if they intend to call any new evidence regarding possible sanctions and if they wish to make submissions on what, if any, orders the ASC panel should make.